select languages
latestnewslatestnews RSS
Home > Business > Industry
(News Focus) LTE splurge batters mobile carriers' profits
By Lee Minji
SEOUL, Aug. 3 (Yonhap) -- South Korean mobile carriers saw their second-quarter earnings tumble from a year earlier as they splurged on the fourth-generation long-term evolution (LTE) network in an effort to find a new profit source amid anemic market growth, industry watchers said Friday.

   However, the three mobile carriers -- SK Telecom Co., KT Corp. and LG Uplus Corp. -- are expected to chalk up better results for the rest of the year as their hefty spending starts to pay off and competition slackens.

   This week, the mobile carriers reported huge setbacks in profits for the April-June period, which they attributed to increased marketing and investment expenses for the faster network technology.

   Top player SK Telecom saw a 74.1 percent plunge in net profit for the April-June period, while KT suffered a 43.4 percent nosedive. LG Uplus, the smallest mobile carrier, swung to a net loss.

   In the second quarter, the three companies spent a combined 2 trillion won out of their 12.6 trillion won sales for marketing. SK Telecom led the spending spree, using 960 billion won, or 31.3 percent of its revenue.

   The spending binge was part of mobile carriers' search for ways to lift the saturated market and build new platforms that can better stream mobile content, a potentially lucrative source of profit.

   The three players acknowledged the adverse impact the LTE rush has had on their profits, but forecast a recovery for the rest of the year.

   "Marketing expenses are likely to go down as competition weakens in the second half," LG Uplus chief financial officer Sung Ki-sup said in a recent conference call. "After bottoming out in the second quarter, profit and growth are likely to start gaining ground in the third quarter."

   Market watchers backed the view, noting that SK stopped doling out subsidies to LTE subscribers at the end of July.

   "While competition won't completely fizzle out, it will likely weaken as mobile carriers scale back subsidies," said Ahn Jae-min, an analyst at Kiwoom Securities Co.

   "Mobile carriers have already spent too much in the first half," said Yang Jong-in, an analyst at Korea Investment & Securities Co., projecting a cut in marketing costs will likely boost profit through the second half.

   Meanwhile, mobile carriers look forward to getting what they paid for, hoping their ballooning LTE customer base will fuel growth and profit.

   "LTE subscribers are expected to take up more than half of our subscriber base next year," said SK Telecom chief financial officer Ahn Seung-yun. "The expansion in LTE smartphone use will contribute to the platform business' growth."

   The three mobile carriers, which provided LTE services to 8.7 million users as of the end of July, aim to raise that number to 16 million by the end of the year.

   Nonetheless, their efforts to each grab a bigger stake in the growing LTE market are likely to continue for the time being.

   "Competition is overheated. But I understand it since the LTE network is completely different from the existing network," said Yang, "It's a profitable business, even when factoring in the high initial costs."